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- Title
Optimal sale across venues and auctions with a buy-now option.
- Authors
Bose, Subir; Daripa, Arup
- Abstract
We characterize the optimal selling mechanism for a seller who faces demand demarcated by a high and a low end and who can access an (online) auction site (by paying an access cost) in addition to using his own store that can be used as a posted price selling venue. We first solve for the optimal mechanism of a direct revelation game in which there is no venue-restriction constraint. We find that the direct optimal mechanism must necessarily incorporate a certain kind of pooling. We then show that even with the venue constraint, the seller can use a two stage indirect mechanism that implements the allocation rule from the optimal direct mechanism, and uses the venues in an optimal fashion. The first stage of the indirect mechanism is a posted price at the store. If the object is not sold, we move to stage two, which involves an auction at the auction site. A feature of this auction is a buy-now option which is essential for implementing the pooling feature of the optimal direct mechanism. We also show that the buy-now option in the optimal mechanism is of a “temporary” variety, and that a “permanent” buy-now option, in contrast, cannot implement the optimal mechanism. Auctions with a temporary buy-now option are in widespread use on eBay.
- Subjects
AUCTIONS; INTERNET auctions; ELECTRONIC commerce; PRICING; EBAY Inc.; WEBSITES; BIDS
- Publication
Economic Theory, 2009, Vol 38, Issue 1, p137
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-008-0345-9